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«John Austin Unquestioned Brilliance Navigating a Fundamental Leadership Trap Fis h e r Ba ld w i n Pre ss | Stat e C ol l ege, P enns y lvani a ...»

John Austin



Navigating a Fundamental

Leadership Trap

Fis h e r Ba ld w i n Pre ss | Stat e C ol l ege, P enns y lvani a

Uncertainty Vectoring

We have two classes of forecasters: Those who don’t know and

those who don’t know they don’t know.

—John Kenneth Galbraith

I enjoy listening to a smart person prognosticate as much as the

next person. Speeches and articles about the future get me thinking, and that’s never a bad thing. However, I need to constantly remind myself that the author, or the person at the podium, who is telling me what is going to happen over the next five to ten years knows little more than I do about the future. Nevertheless, a good futurist is thought provoking. A thoughtful rumination on the future can be insightful for all in the room, even if the speaker is more confident in his or her predictive ability than is warranted.

We are horrible at predicting the future, but our lives require that we plan for it. Perhaps this is why we so eagerly listen to others tell us what the future will bring. We are grasping for any edge that will help us manage for the future.

In February 2014, I found myself in a room with approximately fifty experts from the oil and gas industry. We were discussing the price of oil, and everyone in the room agreed that the lowest the price of oil would go over the next twelve months was $80 per barrel. Several people in the room later confided to me that Techniques their company’s capital projects were designed to be profitable for Generating anywhere above $65 per barrel. Given this, you can appreciate why Local Insights most people in the room were upbeat about the prospects of their industry.

By November of 2014, fewer than twelve months later, the price of oil was less than $50 per barrel. In November, I am sure I could have found a dozen industry experts who would confidently make the case that the low price was temporary. I likely could also have found a dozen industry experts who would confidently make the case that the low price would stay with us for the foreseeable future. By the time you read this, one of these two groups of experts will have been proven right. Not only that, but looking back, it will seem obvious that they were going to be right. It is tempting for us to conclude that we would’ve agreed with those experts who are correct back before anyone knew they were correct.

This little trick our mind plays on us when it comes to retrospective sense making is one of the reasons we think we can predict the future. We believe we could have predicted the past.

There have been several wonderful studies to illustrate this.1 Let me explain. People are asked to estimate probabilities that something will happen, and then, after the fact, those same people are asked whether or not they thought something would happen in their earlier survey. If something does happen, participants consistently report that they gave that event much higher probability of happening in the first survey than they actually did. This hindsight bias is made worse when combined with our knowledge of how successful the actions were—the outcome bias.2 If something did not work, we forget that we did not know it would fail before it happened.

If we are so bad at predicting the future, what are we to do? Just give up? Of course not. We still need to make plans based on our understanding of the future, but the trick is to stop trying to predict and start trying to anticipate possibilities. Planning for the future is about looking for patterns and seeing when trends end and new ones begin early enough so that we can take advantage of this.

A good example, again from the energy industry, would be the strategic actions of EOG, a US-based oil and gas company.

In 2005, the time of the growing boom in shale gas production Uncertainty in the United States, EOG shifted its investments away from its Vectoring natural-gas assets and used the proceeds to invest heavily in oil production. Shortly thereafter, the price of natural gas cratered.3 While EOG could not predict that this would happen, its leaders anticipated the possibility that it would happen due to the sudden increase in supply that the opening up of shale deposits would have on the natural-gas market. In such competitive industries, sometimes seeing things just a few months before your competitors can be enough for you to take advantage of that insight.

Five Strategies That Can Help You Better Anticipate the Future

1. Understand trends but focus on uncertainties.

Trends are important, but they are simply the cover charge for entering the conversation. We love talking about trends because we can see them, measure them, and project their path into the future. Of course, this means everyone else who is paying attention can also see them. Talking about trends lets others know that you understand the industry and also invites others to agree with you. Trends do not, however, give us the same level of insight about the future as do uncertainties.

When I discuss a trend, I want to debate when a trend will end (as all eventually do) and what trend may replace it. In other words, let’s talk about the uncertainty that is inherent in a trend. We can learn a lot by prioritizing uncertainties and considering how different uncertainties relate to each other. Understanding uncertainties gets you ahead of your industry; understanding trends lets you survive in your industry.

2. Know what you don’t know.

Overconfidence is pervasive. When I teach critical thinking, I routinely demonstrate that virtually every person in the classroom does not accurately know what they do not know. We extrapolate what we know (or at least what we think we know) to what we don’t know, and we don’t even know that we are doing it. Confused by that last sentence? Good. Rereading can trigger active processing, Techniques or situational awareness, which is a first step to counterfor Generating ing overconfidence.

Local Insights When listening to futurists talk, remind yourself that they may not know what they don’t know. Then ask yourself what it might be that they don’t know. If you are the one speaking about the future, remind yourself that it is not about prediction; it is about possibilities. Predicting combined with overconfidence leads to single-point forecasting; single-point forecasting occurs when we try to set a single future value on some variable (for example, five-year market growth, interest rates, amount of crossborder trade). Single-point forecasts tempt us to set all our plans as if that target is guaranteed to happen. We, meaning all of us including that person at the podium, stink at single-point forecasting.

3. Listen to experts and outsiders.

Experts have a solid reputation for a reason. Even if they think they know more than they really know (see the previous point), they still likely know a lot. One enlightening way to start a conversation about the future of your industry is to interview six to eight industry experts and ask them to talk about key trends and uncertainties. The insight comes from seeing the pattern of ideas from multiple experts rather than listening to just one.

However, don’t listen to only experts; listen to outsiders too. These may be people who are not given much legitimacy within an industry. These may be people who are discounted by industry experts. Outsiders see the world through a different lens than industry experts. Even though discounting outsiders is a wellhoned industry defense mechanism tied to the confirmation bias, outsiders often know more than experts think.

I am reminded of conversations I had with executives at an automotive parts supplier in 2008. They told me that anyone who did not grow up in the auto industry could never understand it.4 In the next breath, they told me their industry was doomed if they did not change how they perceived the world. These experts recognized they needed outsiders’ points of view, yet they refused to Uncertainty give outsider perspectives any credibility! Vectoring

4. Find patterns in complexity.

Once you dive into a conversation about uncertainties, you risk being overwhelmed by the complexity of what you find. Structured techniques can help here. Scenario building is one useful and widely used technique to sort and manage this complexity. The advantage of scenario building is that, if done well, it creates multiple plausible and different potential futures. Multiple scenarios create a counterbalance to our tendency toward overconfidence and a limited focus on the most likely future. In addition to my use of scenarios, I’ve refined an alternate technique, uncertainty vectoring, that can also help reveal patterns in the uncertainties.

Uncertainty vectoring maps the correlations and patterns among high-impact uncertainties, allowing a group to examine a wide array of “what-if” questions about the future. Uncertainty vectoring builds from commonly used scenario-planning processes and has much in common with them. Both work well, and both have strengths. I taught scenario planning for a number of years and designed uncertainty vectoring to address some of the common challenges I’ve observed with the use of scenarios. However, like any framework, uncertainty vectoring has weaknesses as well.

5. Remember you are wrong.

There is only one guarantee about your description of the future. It is wrong. This does not mean it is useless to imagine futures—quite the opposite. If we take the time to debate, discuss, and describe multiple futures, but we also recognize that none of our imagined futures will perfectly describe the true future, we become more attuned to patterns of uncertainties and more prepared to respond to emerging trends as they play out.

Uncertainty Vectoring

–  –  –

John Austin works at the intersection of research and practice as the president of Three Translation Leadership. Prior to that, Dr. Austin was a principal at Decision Strategies International and on the faculty at Penn State University and the University of Washington, Bothell. He continues to teach executives for the Aresty Institute of Executive Education at The Wharton School (University of Pennsylvania), John Austin, photo by Georgetown University McDonough Laura Waldhier School of Business, and the University of North Carolina Kenan-Flagler Business School. Dr. Austin has worked with numerous global Fortune 500 companies and government agencies as an executive development resource.

Dr. Austin has a BA in economics from the Johns Hopkins University and a PhD in organization studies from Boston College.

He is a thought leader in the areas of team leadership, organizational change implementation, and strategic decision-making.

Dr. Austin’s work on knowledge transfer in managerial teams has been used to develop executive teams around the world.

Dr.  Austin’s research has been published in leading management and applied psychology journals including Journal of Applied Behavioral Science, Journal of Applied Psychology, Journal of Organization Design, and Organization Science as well as practiceoriented publications including HR Magazine and OD Practitioner.

His work has been recognized with three Best Paper awards from

the Academy of Management and has been mentioned in a number of media outlets. He is the author of Leading Effective Change:

A Primer for the HR Professional, published as part of the SHRM Foundation’s Effective Practice Guidelines Series.

For further information or to contact Dr. Austin, go to www About the Author.ThreeTranslationLeadership.com. He  is available for training,

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